Wednesday, September 28, 2016

MFN status to be another small cut to bleed Pakistan

Looking to further step up its offensive after the Uri attack, the government will explore the option of taking Pakistan to the World Trade Organisation's (WTO) dispute resolution body for refusing to reciprocate India's grant of the Most-Favoured Nation (MFN) status to Islamabad, even after 20 years.

Ameeting convened by PM Narendra Modi on Thursday to examine the option of “internationalising“ the MFN issue comes close on the heels of a decision to revisit the Indus water treaty to plan use of waters that have so far flowed unhindered into Pakistan.

The idea of approaching the WTO against Pakistan's stubborn refusal to grant India MFN status is not new but it had never acquired traction. The meeting on Thursday will take a hard look at the option. Like the Indus review, the MFN exercise is intended to impose costs on Pakistan for the terror attack that killed 18 soldiers at an army camp in Uri.

Sources said the government may not consider withdrawal of MFN status, and instead, move the WTO over Pakistan not granting similar status to India. Pakistan has been wary of according MFN status to an “enemy nation“ and sought to change the terminology to politically more neutral terms like non-discriminatory market access. Its domestic industry has also opposed saying Indian goods would swamp Pakistan once trade was fully opened up.

India granted Pakistan MFN status in 1996 though trade normalisation between the two nuclear-armed neighbours is yet to take place.Officials from the commerce and external affairs ministries are expected to be present at the September 29 meeting.Bilateral trade amounts to a very modest $ 2.6 billion and is loaded in favour of India.

Under WTO rules, each member treats all the others equally as “most-favoured“ trading partners. If a country improves the benefits that it gives to one trading partner, it has to give the same “best“ treatment to all other WTO members so that they remain “most-favoured“.

Experts said there are clauses under WTO rules which India can invoke to withdraw MFN status to Pakistan. Article 21 (b) (III) of WTO rules says that “nothing in this agreement shall be construed to prevent any WTO member from taking any action which it consider necessary for the protection of its essential security interest taken in time of war or other emergency in international relations“.

Trade experts said any move to revoke the MFN status to Pakistan will send a strong signal that India does not want to do business with Islamabad.Revoking the MFN status will hurt several sectors of the Pakistan economy and make goods expensive for consumers.Those trading with Pakistan may also be hurt if India pushes to withdraw MFN status.Sources said revoking the MFN may have repercussions for trade in border areas such as Punjab, which may prompt the Centre to explore the option of approaching the WTO's dispute settlement body .

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